me: >> Now asset prices are "deflating." Is that because of a declining money >> supply? is there a Monetarist in the house?
Sabri: > Why do you think there was an asset price inflation in the first > place? Deregulation of finance is most central, along with the Fed's unwillingness to warn against the development of a bubble economy. The general stagnation -- especially after the tech bubble pop and recession of 2000-01 -- meant that without a housing bubble, Bush and many other policy-makers would have a hard time pointing to prosperity in order to justify their misrule. That is, in order to have prosperity in a generally stagnant economy, _laissez-faire_ finance and the resulting bubble were needed. (why stagnation? widening income gaps keeps mass consumption down (absent credit expansion) and after 1997 or so, the profit rate was generally lower, until the end of the boom, discouraging fixed investment. War spending and tax cuts for the rich have not been big enough to compensate.) > Did the easy credit not lead to a huge growth of money that > had to go to somewhere? The increases in the money supplies is not something that happened exogenously due to Fed monetary policy. Instead, it arose endogenously, i.e., responding to the demand for finance that went along with the housing bubble. That is, it's not like we can talk about the "huge growth of money" having "to go to somewhere" as much as it's the "somewhere" (the housing bubble) that evoked the "huge growth of money." Of course, the Fed _could have_ warned against irrational exuberance in the housing market and _could have_ encouraged higher interest rates or new regulations, to pop the bubble. If successful, that would have led to a fall in the demand for money and thus the supplies of money. So there's a connection between the size of the bubble and the supplies of money. But to point to the supplies of money as being somehow the culprit is putting the horse before the cart. > By the way, I did not call it "hyper", I > called it "very high" and others call it bubble. I had written: >> When that power goes away, as during a civil conflict or after losing a war, >> the printing presses roll and fiat money loses its scarcity value, so that >> hyperinflation roars. you responded: > In a way, this is what happened over the past decade. This response, right after a sentence where I referred to the collapse of the state, the rapid printing of fiat money, and hyperinflation, implies that you think that hyperinflation has occurred during the past decade. BTW, I don't think that the US state collapsed during the 1990s. If anything, that's in the future. Maybe that will arise as a result of social conflict from the current crisis. > Do you have any > doubts about that we had gone through a very high asset price > inflation? no. > What does what I said have anything to do with Monetarism? The article by Ambrose Evans-Pritchard was generally Monetarist in its approach (talking about changes in the money supply causing this and that without seeing how this and that cause changes in the money supplies) and you seemed to endorse it. A contrast between this missive and my recent one responding to Shane may be confusing. Here, I'm arguing that the money supplies are endogenous and no demiurge for steering the economy. In the other e-mai, I was talking about how changes in the supply of money could cause hyperinflation. The clarification: the money supplies --> hyperinflation story only applies in an extreme case _and_ that the money supplies grow not because of Central Bank policy as much as because "things fall apart" (civil war, etc.) -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
